Another demerger, Another wait-and-watch

Request: If somebody could point me to where all the special situations (demerger, spin-off's, split-off's etc.) in Indian markets are listed in chronological order, that would be much appreciated. Thank you.
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The 52 week low list brought to my attention another de-merger: Hinduja TMT. Hindujas spun off BPO business, keeping the cable business in the original company. The relisting happened in June. Since then, the shares of cable business (Hinduja TMT) and the BPO business (HTMT global) have promptly started their downward journey.

The interesting thing about both these businesses is what they have received as parting gifts from the parent. When Vodafone started a bidding war for Hutch, a lot of people benefited besides Ruia's of Essar. Hinduja's, too, received approx 2000 Cr from sale of their stake in Hutch. Out of this booty, they have endowed both the BPO and cable business with about 500 Cr each. The cable business has also got 47 acres of land in Bangalore. All of this information is listed in detail in the 24th April BSE announcement

Now, if BPO or cable business could be obtained below 500 Cr, it would be a classic Graham Net-Net bargain. Unfortunately, the market cap today for each business is about 900 Cr ( no debt) and hence we need to dig deeper.

For a comparative valuation of BPO business, one could look at EXL. From Nasscom's FY06-FY07 ranking of ITES/BPO companies, EXL ranks at no. 10 and HTMT global is at No. 13. EXL trades on Nasdaq at 12x latest Q revenue. For HTMT, taking the Dec. quarter number and putting a 10x revenue multiple, values it at 800 Cr. So, if one believes that EXL is trading fairly (hint: I don't think so), HTMT Global could be obtained at 50% discount viz. obtained at 400 Cr (900 Cr market cap - 500 Cr cash).

I would personally wait as I think the impact of rupee appreciation is going to be harder on BPO companies compared to IT companies. Sans any moat, EXL at 3x forward annual revenue is expensive and I would be wary of applying similar valuation to HTMT.

HTMT announces its results on 30th July. If the results are not good, market might overreact and drive HTMT globals' market cap below 500 Cr. That would be the time to swoop in and capture this net-net.

Moving on to cable business, this is much harder to understand - partly because Hinduja TMT owns only 63% of the cable business and there are a bunch of other business clubbed together. There is no clarity of CAS rollout and the competitive positioning of the cable companies. For more background, see my earlier post on Zee demerger.

In summary, wait for any of these businesses to be available at 500 Cr and/or watch for insider actions. Wait and Watch!